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Fifth Circuit Revives Int'l Paper Offshore-Drilling Waste Suit

October 28, 2014

By Jess Davis

Law360, Dallas (August 13, 2014, 8:29 PM ET) -- The Fifth Circuit on Tuesday revived waste claims against International Paper Co. and successor companies that drilled for oil and gas near Outer Continental Shelf property owned by rival energy companies.

The suit, launched by Breton Energy LLC and Conn Energy Inc., alleges IP perforated the sands and unlawfully drained a reservoir underneath land neighboring a tract of land Conn owns. Breton alleged IP committed waste by inefficiently or excessively draining the reservoir and commingled resources from the reservoir with hydrocarbons in a neighboring reservoir, making it nearly impossible for the company to produce oil and gas from its own wells.

Partially vacating a district judge’s order that dismissed the claims, the Fifth Circuit held Breton had pled enough facts to allow its claim for waste to move forward against IP and successor companies including Apache Corp. But the court affirmed dismissal of claims for unlawful drainage against all named defendants in the suit, saying Louisiana law explicitly prohibits landowners from filing claims against others who cause the drainage of liquids or gases from beneath their property.

“It was a great ruling for us,” Breton's attorney Richard Mithoff of Mithoff Law Firm said Wednesday. “The focus from the beginning and the target was IP, because they actually perforated. The other parties were sued only on the narrow ground they should have been aware of the perforation and done something about it.”

Mithoff said he expects the case to return to trial court for a status conference and new scheduling deadlines, and is preparing to take the case to trial. He said though the IP parties can move for summary judgment once the case is remanded, the Fifth Circuit made “pretty clear” there’s enough testimony already in the court record to defeat it.

The rival energy companies had argued Breton’s lawsuit didn’t allege any physical loss of a single molecule of hydrocarbons, but only that production from IP ’s well exceeded projections for production from both reservoirs at issue. And they argued Louisiana law doesn’t allow Breton to sue for “unlawful drainage” based on alleged violation of a Minerals Management Service regulatory letter that authorized the companies to drill wells in the reservoir.

But the Fifth Circuit said given the early stage at which the case was dismissed, and accepting  Breton’s version of the facts as true, the company made a plausible allegation that IP violated the MMS conservation order and contributed to waste from the reservoir. Breton’s detailed allegations were enough to surpass the plausibility hurdle set out in the U.S. Supreme Court's seminal Bell Atlantic Corp. v. Twombly case, the circuit court held.

The overproduction from the neighboring reservoir supported the theory that minerals from both had been commingled and indicated a total loss of recoverable hydrocarbons from the reservoir underlying Breton’s property, according to the appeals court.

Circuit Judges E. Grady Jolly and Stephen A. Higginson and Senior Circuit Judge Emilio M. Garza sat on the panel.

Breton is represented by Richard W. Mithoff and Joseph R. Alexander Jr of Mithoff Law Firm; and Russell S. Post, Murray J. Fogler and Jas Brar of Beck Redden LLP.

The Apache Corp. parties are represented by Tom Bayko and Joshua J. Newcomer ofMcKool Smith PC; and Roger D. Townsend of Alexander Dubose Jefferson & Townsend LLP.

The case is Breton Energy LLC et al. v. Mariner Energy Resources Inc. et al., case number13-20307, in the U.S. Court of Appeals for the Fifth Circuit.